Land is considered a safe investment, but when the average prices are vague, it is hard to determine how good an investment you're making.
Agricultural land is hailed as an excellent alternative investment, but most resources covering its price provide outdated prices or do not mention the dollar value of an acre.
1 Acre of Agricultural land is worth $5,083 (for cropland) and $1,702 (for pasture). The price of individual plots can vary based on location and other value factors, but you can expect it to be over $4,420 for cultivatable land and $1,480 for pasture land.
In this article, you will learn everything you need to know about buying farmland, including the factors that affect its price, how to detect a price bubble and avoid buying overpriced agricultural land, and the strengths and weaknesses of buying agricultural land. But first, let's go over the most important aspect of getting agricultural land.
Before buying agricultural land, you must ask yourself whether you are willing to move. The farther away you can move, the more buying freedom you have. If you cannot move, then any agricultural land meant for personal use will be nearby. But if you can move, you can look up the most investor-friendly plot once you figure out the factors that affect an agricultural plot's price.
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What Factors Affect Agricultural Land’s Price?
Agricultural land's price is affected by demand, availability, and track record of feasible cultivation. It is also proportionally impacted by inflation. In 2021, it increased by 7.8%, twice as much as US inflation.
You should consider all these factors to avoid buying high. There are periods of uncertainty where the marketplace gives agricultural land disproportionate value. If you buy without looking at all the factors, you can end up buying at a higher price and may not be able to sell at a profit.
Even if you don't intend to acquire land for capital gains, getting it for the right price should be important. The remaining disposable cash can be used to buy inventory for cultivating crops. In this section, we will explore the role of each factor.
According to the USDA, the US cropland increased in value by 7.8% in 2021, which is almost twice as much as the average consolidated inflation. This is consistent with historical trends, where inflation has a 2x effect on the price of cultivatable land.
On the surface, this means buying sooner is better than buying later. That's generally true unless special circumstances create a cropland bubble. For those looking to buy cultivatable land on leverage, the 2x inflation price projection can be handy.
There is always a demand for agricultural land. The question you must ask is whether there will be enough of a need, ever, for the land to command a higher price than what you acquired it for. Given that agricultural land prices have beaten active trading in fetching a net profit, they are a safe bet. Usually, capital gains can be offset by inflation, but with farmland commanding a higher price than the average inflation, it is unlikely for a piece of land to slump in price, except if it is too remote.
It might seem like availability refers to supply. In reality, the availability of agricultural land refers to its accessibility. On a theoretical extreme, agricultural land that cannot be accessed by humans would fetch a $0 value regardless of how vast and lush it is. This indicates that regardless of the land's inherent value, location still matters.
The more easily a plot is available to the average individual, the more likely he is to bid for it. Plots that are located in a far-off rural area garner interest from more niche-specific investors. Having fewer investors is not good for you.
Agricultural land is a very sound investment in almost all circumstances except during a land rally. When the stock market is crashing, you can find large hedge funds diversifying their portfolios by acquiring large agricultural plots. This can shoot up the price of the agricultural land. When you're in the middle of a bubble, it can be hard to figure out that you're in it. Still, there is a way to find out if you're overpaying for agricultural land.
How to Make Sure You Are Buying Cropland at the Right Price?
Find the average national inflation rate and multiply it by two and consider this your percentage ceiling. If the land price has increased by a higher percentage than the calculated ceiling, the land is priced higher than its value.
Knowing that a certain plot is priced above market value can be helpful if you want to wait for a market correction to buy it cheaper. You can also use the inflation rate as the minimum value ceiling. If the price of the land doesn't increase by the same percentage as the dollar loses its value, it is undervalued by definition. Acquiring it can result in short-term gains.
Cropland vs. Pasture
While agriculture usually refers to crop farming, pastoral farming is also one of the main agricultural functions in the united states. Any agricultural land buyer must be able to differentiate between cropland and pasture because the value of these types of land differs.
Cropland has value because of its fertility and environment, whereas a pasture has its value in being broad enough to feel a large population of cattle. Cropland is always more expensive than pasture land, and pastures are more widely available than cropland.
Cropland yields a bulk of its value in the prime season of the fruits, nuts, or vegetables it bears, while pasture land provides a basic grazing-ground value that depends on the cattle that feed on it. It is harder to maintain a crop than it is to maintain a pasture, but you have to manage all agricultural land to an extent, especially to avoid wild growth.
There is no consistent record of regret or triumph in the accounts and reviews of people who have bought cropland or pasture land. In other words, you should make your buying decision with caution.
Who Should Buy a Pasture?
Anyone looking to raise cattle, start a nature retreat, build a farmhouse, or hold land as an investment, should get an appropriately priced pasture. For everyone else, cropland is better for cultivating plants even though it is more expensive.
Who Should Buy Cropland?
Anyone planning to live off the land, create a new revenue stream, or retire closer to nature can buy cropland. Investors looking to diversify out of their dollar-heavy positions can also buy cropland as a hedge.
The advantage of cropland is that you can change the crop according to market conditions and ground realities. The drawback is the higher upfront price. In contrast, the advantage of a pasture is that it is cheaper, but the drawback is that people who own a pasture are often painted into a cattle-raising corner. With industrial meat production, it is harder to monetize a pasture.
Overall, cropland is better because it can be used as a pasture, whereas pasture land cannot be used to cultivate a high-value crop. It is also better because you can buy smaller plots. While pastures are priced lower per acre, the number of acres you need to buy is usually higher.
In some rural areas, hybrid agricultural land can be found. It is good enough to be used to cultivate plants or as a grazing ground. If you can spot such plots, you can make the most out of your investment.
Best Practices for Buying Agricultural Land
With the price and variety of agricultural land covered, let's look at the steps you need to take to ensure that your land acquisition bears fruit.
Be Clear About the Purpose
Is the agricultural land hedge against the dollar value? Are you buying it for personal use? Do you mean to cultivate a crop on it? Knowing why you want the land can help you optimize your search to get the right plot.
Maximize Your Options
The more options you have, the more deals you can walk away from. And the one who can afford to walk away wins the negotiation. Searching online and indicating interest in moving can help you fetch a better price.
Don’t Be Afraid to Ask Questions
While this resource clears the most common questions people have regarding buying agricultural land, there are plenty of specific questions you might have. When you're a buyer, you have the right to ask as many questions as you need before making your decision.
Take Specialists’ Advice
Get the help of a land agent and a legal consultant before engaging in a deal. To make sure the purchase is airtight, you need to have objective third-party input and take your time to decide.
1 Acre of agricultural land is commanding over $5000 in 2022 and is projected to increase by 7.8% to 15% over the next year. That said, you must consider the advantages and drawbacks of specific plots before buying land anywhere.
About THE AUTHOR
Brittany has been in the land business since 2020 when the world was starting to shut down. Since then, we’ve sold to dozens of people from ATV weekend warriors to camping enthusiasts to retired truck drivers. Our inventory spans mostly in the western United States. We’ve been trained by experience, land acquisition courses, and hundreds of hours meeting with county assessors and clerks, zoning officials, realtors, and land investors. We’ve answered hundreds of questions from people regarding the buying and use of land.Read More About Brittany Melling